The momentum for fiscal stimulus is building

US President Trump is calling for a payroll tax relief until after the US elections. Australia just announced a EUR 11 billion package to counter the adverse impact of the coronavirus. The European Commission set up a fund yesterday with EUR 25 billion to tackle to economic shock caused by the virus. The UK raised already anticipated fiscal stimulus by another GBP 18 billion. And these are just a selection of the number of measures that is being announced. Most measures are, however, disappointingly limited. The European Commission’s investment fund represents just 0.2% of GDP, and are taken from existing resources. Hence, the reluctance of governments to really open the tabs increases the odd of a global recession. Forecasts for 2020 GDP growth are around 2.0% (2.4% by the OECD) but this could prove too optimistic.

The exception for now seem to be China  and Italy, both of which have experienced the most severe outbreak of the virus. Italy is aiming to double its initial spending to EUR 18 billion, roughly 1% of GDP.

Next to that, monetary stimulus is also increasing, with the Bank of England following the Federal Reserve in a 50 basis points rate cut. The ECB is also likely to cut rates and to increase its quantitative easing program. Hence, the amount of fiscal (and monetary) stimulus will go up further in the coming weeks/months and will, together with a global decrease in new coronavirus infections, cause an inflection at some point. It seems a little bit too early to expect that now, however.

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